Thai Rating and Information Services Co., Ltd. (TRIS) announced Wednesday 13 December 2000 that it has affirmed the rating of Shin Satellite PLC's (SATTEL) Bt3,000 million senior debentures at "BBB+". The rating incorporates an improvement in the company's transponder utilization, and its strong market position for satellite communication in Indo-China. The rating also takes into consideration expected benefits from the iPSTAR Project, which will be commercially launched in early 2003, though that will cause its leverage to rise. The possibility of substitution of terrestrial carriers as well as stiff competition from foreign satellite operators intensifying the level of industry competition, together with regulatory uncertainty in connection with the liberalization of the telecommunication industry partially counterbalance the company's strengths.
TRIS reported that transponder rentals have grown as demand has picked up domestically and in Indo-China. The C-band transponder reached 97% utilization rate by Q3/2000 compared to 84% at year-end 1999. Utilization of Ku-band is running at 40% up from 34% in 1999. As of mid-year 2000, SATTEL had secured contracts worth Bt11,000 million, most with at least four years yet to run. This should ensure cash inflow for the medium term. The iPSTAR project was kicked-off in mid-year 2000 when SATTEL gave American Space Systems/Loral the mandate to build the satellite. Compared to conventional satellite services, iPSTAR will provide more cost-effective and higher quality broadcast services. The project aims to attract increasingly Internet-related businesses in Asia that need broadband high-speed transmission capacity. At the same time, this suggests higher leverage in the future because the majority of funds will be coming from debt financing.
Global communication is moving toward broadband technology using both terrestrial and satellite technology. Each technology has unique characteristics, advantages and drawbacks, and can substitute for each other, though not perfectly. This opens the possibility for some customers to switch from satellite to terrestrial technology once the land-line infrastructure is laid more widely. Meanwhile, competition among regional satellite operators cannot be overlooked even though each provider has occupied a strong customer base in a certain market. Transponders in the Asia-Pacific are slightly over-supplied which may lead to price pressure in the future. While delay in the scheduled liberalization of Thailand's telecommunication industry, due in part to a failure to appoint members of the National Telecommunication Commission (NTC), is causing uncertainty about specific regulations new players would have to follow and how that would impact SATTEL.
SATTEL reported a fair financial status for the period ending Q3/2000 reflecting its improved cash flow position and a comfortable EBITDA interest coverage at 5.10 times compared with 3.48 times in 1999. Funds-from-operation (FFO) to total debt increased from 25.08% for full-year 1999 to 26.74% for the first nine months of 2000. Despite its operating margin dipping to 60.66% in Q3/2000, its pretax return on permanent capital improved to 11.64% for the first nine months of 2000. At Q3/2000, the debt-to-capitalization remained unchanged from 1999 at 62%. The company's leverage should not improve in the next couple of years as it takes on new debt to finance the iPSTAR project.
Shin Satellite PLC (SATTEL) Issue Rating SATTEL#2: Bt3,000 million senior debentures due 2002 Affirmed at BBB+